Honest Debate on Land Tax

At the request of those on both sides of the isle here in P&R, I'm starting this thread to debate the merits of the land tax.

This thread is meant as one in which participants will check their ideologue biases at the door in pursuit of an honest debate. Both sides should be well represented and well argued. If any participant argues against the person rather than the idea as supported by logic and empirical evidence, it is to the detriment of the thread, and those of us in pursuit of honest debate will cease participation.

The basis for the debate is the idea of scrapping the entire tax code as it stands currently in the US, and replacing it with a "land value tax". That is, a tax on the unimproved value of land without regard to the value of improvements.

The reason for this topic selection is as follows.

1) This tax has arguably the best pedigree of any single tax presented. It has been supported most famously by Henry George, but before him Adam Smith, David Ricardo, Milton Friedman, and many of the other highly regarded economists. Keynes himself was seemingly silent on the topic during the land tax debate in Great Britain, but mainly because he thought the land situation would resolve itself, and therefore rendered the debate pointless. But lest my left leaning friends feel under-represented, the idea of the land tax was supported by John Stuart Mill, John Kenneth Galbraith, David Loyyd George, and others.

2) This tax is considered by most economists to be the most fair and efficient tax idea ever presented. Easy to calculate, easy to collect and regulate, results in the least amount of dead weight loss, and most incentivizes efficient land use.

3) By incentivizing efficient land use, it reduces urban sprawl and environmentally expensive development like using open greenspace for parking lots. Ideas like this are very appealing to the Left. It also reduces the propensity for individuals to get rich off simple speculation resulting from the efforts of the community around them.

4) By incentivizing efficient use of land it allows free markets to operate more efficiently and eliminate the tax on labor and innovation that the Right hates so much.

Despite the broad support in theory, it remains one of the most avoided tax solutions available.

How would a flat rate on land tax have held up in this latest financial crisis, particularly in terms of the sharp spike in social safety net expenditures? And what about falling land values during such a crisis?

How would a flat rate on land tax have held up in this latest financial crisis, particularly in terms of the sharp spike in social safety net expenditures? And what about falling land values during such a crisis?

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The first thing to consider is that theoretically, the simple version of land value tax (LVT) better protects against real estate bubbles. Remember that such a tax significantly discourages land speculation.

The basis for this theory is that land speculation as it currently exists is fostered by the ability of the individual to hold vacant land essentially free. He is doing this in speculation that the community will take proactive steps around him in developing the "system". Once such development is either completed or well under way, the holder of such property receives a windfall profit resulting from the efforts of both govt and individuals around him, and really absent of any personal effort.

As to how such a tax would react to a sharp spike in the social safety net, let's hear your ideas..

The first thing to consider is that theoretically, the simple version of land value tax (LVT) better protects against real estate bubbles. Remember that such a tax significantly discourages land speculation.

The basis for this theory is that land speculation as it currently exists is fostered by the ability of the individual to hold vacant land essentially free. He is doing this in speculation that the community will take proactive steps around him in developing the "system". Once such development is either completed or well under way, the holder of such property receives a windfall profit resulting from the efforts of both govt and individuals around him, and really absent of any personal effort.

As to how such a tax would react to a sharp spike in the social safety net, let's hear your ideas..

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I should note that on the same basis that it discourages land speculation it also effectively fights urban blight. The owner of a decaying building, especially in urban settings, is severely punished for allowing his building to decay. His taxes will remain or even increase as his revenue decreases.

Under our current system, there is no great incentive, outside of a desire to make more money, for a community to ensure efficient use of land.

Example
If an owner of a large residential complex in urban america allows his units to decay, this results in reduced rents. Reduced rents result in LOWER tax because it is his income that is mainly taxed and property taxes in most states are based on the improved value of the property. He is thus getting an incentive to allow his property to decrease in value. At a certain point, the greatest incentive is to simply wait around for the land value to increase to a point where is completely overwhelms the value of the improvements. This generally spreads through a community until a massive and expensive development project completely reconstructs the entire area.

Ironically, all the while the owner has been acting exactly contrary to the wishes of the surrounding community, but when the new development goes in, he receives a windfall profit.

The basis for the debate is the idea of scrapping the entire tax code as it stands currently in the US, and replacing it with a "land value tax". That is, a tax on the unimproved value of land without regard to the value of improvements.

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its a crazy idea. so someone who makes a billion dollars and owns no land pays no tax?

it might have been an idea 200 years ago when most everyone was a farmer.
the fairest tax is an income tax. you dont pay until you make it. land or property tax schemes always have the problem of hitting people hard when they have no ability to pay.
look at this year. many farmers will have no crop because of the drought. under your plan they still get hit with a tax bill. under an income tax they owe nothing.